Bargain term-life policies may soon be costing more

Staying Ahead

May 17, 1999|By Jane Bryant Quinn

IF YOU haven't shopped around for cheaper life insurance coverage lately, do it now. Not only have term rates dropped dramatically, you can also lock in your rate for 20 or 30 years. This may be the last year that price guarantees will be offered for so long a period of time.

Starting next year, the term-insurance market is going to change in many states, due to a change in regulations. Policies with long-term price guarantees are probably going to cost you more.

You'll still have access to cheap term insurance, but its price will probably be fixed only for five or 10 years. At the end of that period, the insurer could decide to charge you more.

How much life insurance should you have? As a rule of thumb, couples with two small children should be insured for at least seven times the amount of money they earn (including any coverage they get through their employers).

If you earn $70,000, you'd want a policy in the $490,000 range, or higher.

About a dollar a day

Most family men and women are nowhere close. Yet the cost is surprisingly reasonable. At 40, a man in good health, who doesn't smoke, can get $500,000 worth of term coverage for around $390 a year in most states, guaranteed for 20 years. A women would pay $325 a year.

That's according to Compulife Software Inc., which dispenses free price information at www.termforsale.com.

State regulators worry that some insurers aren't holding enough cash in reserve to pay future claims on these policies if new sales slow down.

So they're changing the way that insurers have to calculate the size of their reserves.

The proposed regulation, known as Triple X, was OK'd in March by the National Association of Insurance Commissioners.

Triple X still has to be approved by the individual states. The earliest it could take effect would be Jan. 1.

So far, about 21 states appear to be on board, says Jim Van Elsen, a Colfax, Iowa, actuary who is one of the regulation's prime movers.

To get the additional money they'll have to hold in reserve, insurers will probably raise premiums on policies with long-term guarantees. Policies you've already bought won't be affected.

The change covers only policies issued after the new regulation has passed.

Under Triple X, term policies with rates guaranteed for 20 years and up could cost 10 percent to 40 percent more, says Chris Kite of FIPSCO in Des Plaines, Ill., a company that provides insurers with marketing software.

Term policies with 30-year premium guarantees will all but vanish, says John Scott, president of Zurich Kemper Life.

Many policies available

You'll still find plenty of super-low-priced term insurance for sale.

Insurers can comply with Triple X without raising premiums or even increasing their reserves. All they have to do is guarantee the price for a fewer number of years.

For example, they could sell you a 20-year term policy with low premiums guaranteed only for the first five or 10 years. After that, premiums could rise. (Some insurers sell policies like this already.)

But Bob Barney, president of Compulife, thinks these policies will be mis-sold. In fact, he says, they're being mis-sold already. Agents don't always tell buyers that their future premiums might rise.

If you ask, they'll probably assure you that term premiums always have fallen in the past, so you don't have to be concerned.

But if life insurers have the right to raise premiums, they eventually will, Barney believes. Here's how he sees the game playing out: You buy 20-year term insurance with a 10-year guarantee -- perhaps at a lower premium than you're charged now. In the 11th year, the price goes up. Outraged, you check other insurers. But you're 10 years older, and even with the price increase, your current policy is cheaper than others on the market.

You're locked into the policy you have.

Van Elsen calls Barney's scenario "possible but not probable."

He thinks price increases would occur only if the insurers ran into unanticipated costs. If this worries you, he adds, you might want to pay extra for a term policy whose long-term rates are guaranteed.

Don Reiser, president of Ameritas Direct, thinks you'll still be able to find policies with 20-year guarantees at reasonable prices. Some large companies may decide to raise their reserves without raising premiums, he says.

Next year, we'll know more. In the meantime, this is the year to buy, with the longest price-guarantee you need.